Wednesday, November 11, 2015

Short Term Rental Debate

From our friends at Marshall, Roth & Gregory, PC, here is a legal moment from Phillip Roth regarding a very hot topic, Short Term Rentals in Asheville.

The State of Short-Term Rentals in Asheville

A lawsuit filed on October 20th in Buncombe County Superior Court has taken the currentdebate in Asheville over short-term rentals (STRs) to a new level by challenging the City’s authority to enact ordinances regulating STRs.

In Robertson et al v. City of Asheville, No. 15-CVS-4688, the plaintiff homeowners routinely rent out their residences to guests for periods of fewer than 30 days, expressly in violation of § 7-2-5 of the Unified Development Ordinance (UDO). Having been issued citations by the City under the ordinance, the plaintiffs are challenging the legality and the constitutionality of the ordinance on a number of grounds, arguably the most interesting of which is claiming that the City has no authority to regulate short-term rentals because that authority is “preempted” by the North Carolina Vacation Rental Act (N.C. Gen Stat. § 42A-1 et. seq.).

Generally, a municipal ordinance is invalid (“preempted”) under North Carolina law where it purports to regulate a field for which the State of North Carolina has shown legislative intent to provide a complete and integrated regulatory scheme to the exclusion of local regulation, or if the local ordinance makes unlawful an act, omission, or condition which is expressly made lawful by State law. N.C. Gen. Stat. § 160A-l74(b).

The plaintiffs in Robertson contend that this is what has occurred with regard to STRs by virtue of the Vacation Rental Act. Acknowledging that the “growth of the tourism industry has led to a greatly expanded market” for short-term vacation rentals that present “unique situations not normally found in the rental of primary residences for long terms,” lawmakers concluded that it is “necessary for the General Assembly to enact laws regulating the competing interests of landlords, real estate brokers, and tenants.” N.C. Gen. Stat. § 42A-2.

Although the Vacation Rental Act appears more focused on the contractual relations among the short-term tenants, landlords and real estate brokers -- rather than expressing a broad policy statement on the legality and regulation of short-term rentals within cities -- the Plaintiffs find support for their position in a section of the Act that implies that vacation rentals of less than 30 days are legal in contrast to the City’s ordinance providing just to the contrary – this amounts to a near head-on collision, legally speaking.

Whether the Plaintiff’s contention will withstand judicial scrutiny remains to be seen and it could be months and more likely a year or more before the lawsuit reaches trial.

The stakes are obviously high both locally and nationally. There are more than 600 short-term rentals listed on the various websites for Asheville. And although the Plaintiffs were fined $100 per night under the old ordinance, City Council recently raised the penalty provision of the ordinance to call for a fine of $500 per night. Rather than relying on citizen complaints to alert it to short-term rental violations, moreover, the City also decided to create an enforcement position that would actively seek out violators.

If recent events in San Francisco are a harbinger of things to come, it will not be surprising if short-term rental companies like AirBnB, HomeAway and VRBO enter the fray as part of a national campaign to keep short-term rentals legal. Following on the heels of successfully defeating “Proposition F” – which would have curtailed short-term rentals in San Francisco – AirBnB has stated its intention to combat attempts by municipalities to regulate short-term rentals elsewhere. It is doing this in part by mobilizing the property owners for whom it lists vacation rentals as a potent political force. AirBnB and its ilk may also follow Uber’s strategy whereby it pays the citations and/or defends actions brought against its drivers by the various municipalities.

Keep in mind that the City's ordinance only applies where the entire property is rented. It remains legal for a property owner to rent out a portion of the home on a short-term basis – a so-called “homestay” – just so long as the owner resides in the home at the same time.

Finally, as discussed in a prior edition of A Legal Moment, the issue of short-term rentals is also a hot one in private planned communities where residents feel that short-term rentals have the effect of decreasing property values and generally raising the nuisance level occasioned by partying short-term tenants. Homeowner Associations are actively amending their Declarations with provisions regulating both long- and short-term rentals within their jurisdictions.